Private equity is seeing some healthy signs of recovery as private equity giants like Blackstone, Carlyle, and Bain all made acquisitions this week. The largest deal was made by Blackstone that made a $1.67 billion buyout of Apria Healthcare Group, which was followed by PepsiCo Inc.’s acquisition of JC Lebedyansky, a Russian juice company. See a list of last week’s largest deals here:
Tremors from the credit crunch can still be felt to this day in as far away places as Japan. Deals are getting done, but at lower multiples. Before the liquidity problems in the market, prices paid were at multiples of 10x the annual earnings of Japanese companies. D&M Holdings was sold to Bain this week at 6.7x. This is an indication of not only how much competition there is in the market for good deals, but of the large sums of capital competing for the same prizes.
By Jeff Watson, Loewen & Partners
Posted by Jeffrey Watson, Loewen & Partners
The world admires, and wants to hold on to, and not lose, goodness. It admires virtue. At the end it gives its greatest tributes to generosity, honesty, courage, mercy, talents well used, talents that, brought into the world, make it better.
That's what it really admires. That's what we talk about in eulogies, because that's what's important.
We don't say, 'The thing about Joe was he was rich.' We say, if we can, 'The thing about Joe was he took good care of people.'"—Peggy Noonan, "A Life's Lesson," wrote this at the passing of one of her journalist colleagues, Tim Russert.
I credit Peggy Noonan for Ronald Reagan's success as she wrote many of his speeches, bringing back that combination of big vision but pulling it back down - like a kite string - to how the big idea applies to each of us.
Are you using your talents to build up the people in your team, to create a great place to work and in your own way, making the world a better place? If so, hats off to you. Keep going.
The private equity money will recognize your tenacity to keep adapting to how to apply your talents to make the world a better place. This spirit is the essence of good management and good teams get the best finance partners.
Instead, the main word I recall from our lunch was “Ignorance.” Specifically, he related to me a cautionary tale: The best talk he’d heard at a conference on business start-ups he’d recently attended focused on ignorance as the key to entrepreneurship. What the conference speaker meant was that if the average entrepreneur truly knew how hard it would be to build a company, nobody would ever begin. It takes ignorance to want to start a company from scratch.
My friend’s weary look, four years after founding his company, told me he wasn’t kidding. In all my excitement to begin, I’m pretty sure I had no idea what he was talking about.
A few weeks later, I visited my bank manger.
Before I even sat down, she commented to me: “You’ve got the grin of someone who just started her own company.”
“Yup!” I said, smiling.
She said, wisely I now understand, “You’re going to lose that smile. But hopefully, some day, you’ll be able to get it back.”
The optimism of that meeting has not left me in the subsequent years, but I have certainly had the smugness challenged. I’ve come to appreciate their thoughts. Business is tough and not for the faint hearted.
“The heyday of 2007 was pretty remarkable in terms of the kind of credit one got,” Schwarzman says. “It’s unclear whether the deals done during that period will offer the best returns for private equity investors.”
"Should the takeover fall through, BCE shares would likely drop, but after that, they should recover. After all, BCE would likely reward its shareholders with a special dividend, higher regular dividends or share buybacks," the publication said.
- Jeffrey Watson
Probably the big plus about PE is that, as David Rubenstein of Carlyle says, is that it is not your father's PE. In other words, that Gordon Gehko type barnstorming share holders' meetings and selling off the company assets is not today's PE fellow. Here's a taste of what the WSJ reports on David Rubenstein's speech:
No. 1: This is not your father’s private-equity industry. Rubenstein would remind the leader of the free world that the industry has grown tremendously and now is a vibrant part of the U.S. economy.
No. 2: Private equity is the principal source of high returns for pension funds. Don’t think about the Schwarzmans, Kravises and Rubensteins of the world when you think about making changes to the private-equity industry. Instead, think about the pension funds and the people with stakes in them.
Check out the article and read the blogs below to see just how misinformed smart WSJ readers can be.
1. A degree is not required.
2. Be innovative.
3. Failure can be the path to something bigger and better than you ever imagined.
4. Know your strengths and find a partner whose strengths compliments your weaknesses.
In writing this post, I myself have learned about taking risks and living your dream. Merci Monsieur Saint Laurent! --
Posted By Ingrid M. to The Passionate Fashionista at 6/06/2008 08:42:00 AM
I chatted to a fund manager about the fact that 90% of Businesses in the USA are Still "All in the Family" or family owned. In Canada the figure is given as 75% to 80%. This is still very high. When I made a call to a my friend, Mr. Fund Manager, he had his worthwhile version of why this is the case:
Me: So why are 90% of all business in America held by families and are private?
Mr. Fund Manager: Because the returns are generally too low to cover a true imputed cost of capital (currently some 9% - 3.5% risk free rate plus 5.5% equity risk premium - for an ungeared company) - markets would not stomach such underperformance....
Me: I think it's more about not wanting anyone else to hold the steering wheel - power and control. Still...I am stunned by this figure.
Mr. Fund Manager : Perhaps that too. But I am always amazed at how most private companies ignore the true cost of capital (because then can get away with it!) and as such produce little positive EVA...
Me: Yes - VERY true. I hate to be sweeping with generalizations but what you say is valid. Private business owners generally do not look at cost of capital or EVA. Only one CEO has even mentioned that on a first meeting when we discuss how to access capital.
Mr. Fund Manager: Interesting point. So what’s new at your end?
Me: We are getting a flood of new private equity funds hitting the market and calling us for companies.
Mr. Fund Manager: So much for the slow down. Are you free for lunch next week?
At the risk of sounding xenophobic - OK, I'll spit it out. For crying out loud, why not give Canadian private equity a chance? IMAX, another beloved Canadian icon, was sold to American private equity partners and it was a rocky ride and we are all watching Lululemon. In comparison, private equity companies here in the Canada do a great deal for their companies. If there is a bump in the road with Ace Bakeries, it's a plane flight from Chicago to sort out the hassle and is there the same emotional commitment? Adam Smith, my favourite Scottish writer of The Wealth of Nations, was actually a professor of philanthropy. Yes, he was and it taught him pay a great deal of attention about this emotional side of humans and how it drives our work.
This emotional underlay, is the foundation of his book which is still a definitive text on how companies grow and how they get extinguished. Linda and Martin talk about their philanthropy in the Globe & Mail interview, but I would ask how much they thought about their employees and the Canadian economy by selling to American investors when there are so many fine Canadian private equity companies? Did they even try?
OK - I spoke to Linda and she tells me that one of their Board members had a relationship with a company in Chicago and they found a private equity buyer. There were 40 companies bidding on ACE. The private equity firm that bought ACE from this auction is not in the food business. I guess if you are selling, Linda tells me it's like an old affair - it's over, move on, no looking back. I get that - fair enough.
"Part of being green," says John Loewen, CEO of Loewen Partners, "is caring for the environment and for indigenous people." Tsonga Shoes became “green” and manufactures in an 80%-unemployment-riddled area of South Africa. On-site childcare and educational facilities were established in order to encourage the mostly female workers to create micro businesses and sell their shoes to Tsonga for a living wage. It was working well until, as all manufacturers around the world are discovering, consumers started responding to cheaper goods from China.Tsonga management visited China to look into combining manufacturing locations and were astounded by their discoveries.
The massive, half-empty shoe factory they visited had marble floors. Stunned, they asked the manager how he had raised the capital to build such a place. He told them the Chinese government had paid for the factory. Workers came from hundreds of miles away and stayed in dormitories for stretches of up to a year.
“How can we compete?” asks Russell Lindsey, CEO of Tsonga. “We can put a story about our Zulu shoemaker and her child in each shoebox, but ultimately, the consumer won’t buy Tsonga if cheaper shoes are available.”Indeed. Are those No Logo readers in fact rejecting Wal-Mart’s cheap goods for Bono’s sustainable (but pricier) line EDUN.
We seem to have ADHD consumers this side of the world who, once they enter a store, ignore Naomi’s advice and stampede for the latest lead-painted Barbies from WTO members, such as China. How does our government help our businesses compete and how do we reconcile the fact that green is difficult to achieve when competing with China’s support of their own manufacturers?
Our government talks of Toronto following London’s traffic access restrictions. A good idea for London, but Toronto has much fewer travel options in its infrastructure and few trains to link our cities. Indeed, our transportation seems to be planned by Monty Python with Hamilton’s train track from Toronto stopping 16km away from the city, while other trains pass through without stopping. A functional train for passengers between Hamilton and Toronto would reduce a wretched two-hour trek to 30 minutes. Attractive enough to leave the car behind – you bet!
Instead, our government’s priority is the bun fight about inter-provincial transfers. It’s hard to believe that Canada is one country. And who suffers? Entrepreneurs. With so much inter-provincial paperwork, it’s death by a thousand cuts. Take a lesson from business: Centralized IT departments charged each division service fees so as to share costs. In reality, however, division heads ended up arguing so much about the fairness of the system they eventually turned to outside IT companies to get the job done. Outsourcing became the norm and boomed. Perhaps we could outsource government action for basic transportation services because there is more argument about payment for services than green action. Indeed, it’s time for the government to create joint public-private partnerships with green as the goal.
Canadians balk at these sorts of private-public partnerships despite their success in other countries. Mike Harris’ Superbuild project demonstrated how business backs a project if the government provides initial financial support. When ROM received a $30M commitment from Superbuild, Frank Potter, chairman of ROM’s fundraising arm, said, "This lead investment from the Ontario government will be leveraged many times over by the private sector.”
Potter’s words were prophetic as the private sector followed the government, contributing the bulk of cash and project stamina.Let’s go beyond idealism and get down to action.